Everyone knows what gold and gold coins are, but what is the gold standard? A gold standard exists when the value of a country’s money is related to the reserve amount of gold possessed by that country. A person can trade in paper money to receive a certain amount of gold from the country’s gold reserves.
There are three types of gold standard: the gold specie standard adopted by countries such as the United States and Germany, the gold bullion standard that dealt in gold bars, and the gold exchange standard that entailed the circulation of coins made of precious metals. The United States ended its participation in the gold standard in 1933. At that time, President Roosevelt passed a law prohibiting private ownership of gold in forms other than jewelry.
Other countries stopped using the gold standard until it reached a point that no major economies were using it. The benefits of the gold standard included its stabilizing and self-regulating effects on the economy. Under the gold standard, the government could only print an amount of money equivalent to what it possessed in gold. Doing so helped to regulate inflation because the markets were not flooded with money trying to be used to purchase a limited supply of goods.
The gold standard actually contributed greatly to the export of products. This was because countries received more gold for their exports and could then print more money and increase profits. The establishment of the New World was based on the desire of Spain and other European Countries to increase their gold reserves.
The United States would be forced to exercise increased fiscal discipline if it were to revert to the gold standard. Some might find the benefits of this practice to be quite welcome because it would keep interest rates and inflation at reasonable levels and would contribute to a balanced budget. However, this change is not on the horizon, so consumers will have to do things such as buy gold coins or gold stock in order to invest in gold.